USD flows: Lots to digest from the Fed press conference

Lots to digest from the Fed conference. A large number of taskforces announced on all the key areas from data, to inflation drivers, to the balance sheet, to AI and productivity. He also confirms that he was the individual who didn’t give a dot forecast.

One side note – he highlighted how the dot projections were all provided individually with ‘humility’ and uncertainty (‘given in pencils with erasers’) given the current environment with low commitment levels, so his suggestion is not see the median as a strong take on the likely outlook

Tonally, a few interesting and opposing comments. One, the strengthened focus on inflation stability and inflation overshoot as effectively a monetary policy choice. If anything that does come across as hawkish. On the flip side however, he does note that the remit on inflation will look into inflation measurement as well as drivers (though not the 2% target itself) – he has in the past voiced questions over current core PCE measures. He also slightly ducks the AI/productivity question (we have a taskforce for that) other than to say it will be a source of success for America.

In terms of whether policy is accommodative or restrictive, he notes it is mixed – restrictive seemingly on the housing market, loose, for example, in financial markets (noting the mix of policy there notably)

The balance sheet review is something the market should keep a close eye on, as it will also take into consideration the merits of the current 'more than ample reserves' framework, and the balance sheet composition (again noting his opinions here on mixed policy impact).

While the US long end is quite subdued right now – the market has largely pivotal flattened on the Fed so far -  what gets discussed and proposed on the reserve regime and the balance sheet is going to be highly material for the outlook on the curve into next year.